SAJIVE ASSOCIATES
CHARTERED ACCOUNTANTS
FAQ ON GST
1) What is Goods and Services Tax (GST)?
It is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set off. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.
2) What exactly is the concept of destination based tax on consumption?
The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.
3) Which of the existing taxes are proposed to be subsumed under GST?
The GST would replace the following taxes:
(i) Taxes currently levied and collected by the Centre:
-
Central Excise duty
-
Duties of Excise (Medicinal and Toilet Preparations)
-
Additional Duties of Excise (Goods of Special Importance)
-
Additional Duties of Excise (Textiles and Textile Products)
-
Additional Duties of Customs (commonly known as CVD)
-
Special Additional Duty of Customs (SAD)
-
Service Tax.
Central Surcharges and Cesses so far as they relate to supply of goods and services
(ii) State taxes that would be subsumed under the GST are:
-
State VAT
-
Central Sales Tax
-
Luxury Taxd. Entry Tax (all forms)
-
Entertainment and Amusement Tax (except when levied by the local bodies)
-
Taxes on advertisements
-
Purchase Tax. Taxes on lotteries, betting and gambling.
State Surcharges and Cesses so far as they are late to supply of goods and services.
The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.
4) What principles were adopted for subsuming the above taxes under GST?
The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:
(i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
(iii) The subsumation should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods and services should not be subsumed under GST.
(v) Revenue fairness for both the Union and the States individually would need to be attempted.
5) Which are the commodities proposed to be kept outside the purview of GST?
Article 366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the Goods and Services tax (GST) as a tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. So alcohol for human consumption is kept out of GST by way of definition of GST in constitution. Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, electricity has been kept out of GST.
6) What will be the status in respect of taxation of above commodities after introduction of GST?
The existing taxation system (VAT and Central Excise) will continue in respect of the above commodities.
7) What will be status of Tobacco and Tobacco products under the GST regime?
Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.
8) What type of GST is proposed to be implemented?
It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States/ Union territory would be called the State GST (SGST)/ UTGST. Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.
9) Why is Dual GST required?
India is a federal country where both the Centre and the States have been assigned the powersto levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.
10) Which authority will levy and administer GST?
Centre will levy and administer CGST and IGST while respective states/UTs will levy and administer SGST/UTGST.
11) Why was the Constitution of India amended recently in the context of GST?
Currently, the fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap
between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy service tax.
Introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 for this purpose. Article 246A of the Constitution empowers the Centre and the States to levy and collect the GST.
12. How a particular transaction of goods and services would be taxed simultaneously under Central GST (CGST) and State GST (SGST)
The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.
Illustration I:
Suppose hypothetically that the rate of CGST is 10 per cent and that of SGST is 10 per cent. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs 100, the dealer would charge CGST of Rs 10 and SGST of Rs 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central government account while the SGST portion into the account of the concerned State Government.
Of course, he need not actually pay Rs 20 (Rs 10 + Rs 10) in cash as he would be entitled to set off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.
Illustration II:
Suppose, again hypothetically, that the rate of CGST is 10 per cent and that of SGST is 10 per cent. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs 100, the ad company would charge CGST of Rs 10 as well as SGST of Rs 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government.
Of course, he need not again actually pay Rs 20 (Rs 10 + Rs 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc.). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the redit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.
13) What are the benefits which the Country will accrue from GST?
Introduction of GST would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25 per cent - 30 per cent. Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.
14) What is IGST?
Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of inter-state trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
15) Who will decide rates for levy of GST?
The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.
16) What would be the role of GST Council?
A GST Council would be constituted comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers to make recommendations to the Union and the States on
(i) the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed under GST;
(ii) the goods and services that may be subjected to or exempted from the GST;
(iii) the date on which the GST shall be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel;
(iv) model GST laws,principles of levy,apportionment of IGST and the principles that govern the place of supply;
(v) the threshold limit of turnover below which the goods and services may be exempted from GST;
(vi) the rates including floor rates with bands of GST;
(vii)any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster;
(viii) special provision with respect to the North East States, J and K, Himachal Pradesh and Uttarakhand; and
(ix) any other matter relating to the GST, as the Council may decide.
17) What is the guiding principle of GST Council?
The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States as well as among States. It has been provided in the Constitution (one hundred and first amendment) Act, 2016 that the GST Council, in its discharge of various functions, shall be guided by the need for a harmonized structure of GST and for the development of a harmonized national market for goodsand services.
18) How will decisions be taken by GST Council?
The Constitution (one hundred and first amendment) Act, 2016 provides that every decision of the GST Council shall be taken at a meeting by a majority of not less than 3/4th of the weighted votes of the Members present and voting. The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and the votes of all the State Governments taken together shall have a weightage of 2/3rd of the total votes cast in that meeting. One half of the total number of members of the GST Council shall constitute the quorum at its meetings.
19) Who is liable to pay GST under the proposed GST regime?
Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the turnover threshold of Rs 20 lakhs (Rs 10 lakhs for NE and Special Category States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST / SGST is payable on all intra-State supply of goods and/or services and IGST is payable on all inter- State supply of goods and/or services. The CGST /SGST and IGST are payable at the ratesspecified in the Schedules to the respective Acts.
20) What are the benefits available to small tax payers under the GST regime?
Tax payers with an aggregate turnover in a financial year u p t o [Rs.20 lakhs & Rs.10 Lakhs for NE and special category states] would be exempt from tax. Further, a person whose aggregate turnover in the preceding financial year is less than Rs.75 Lakhs can opt for a simplified composition scheme where tax will payable at a concessional rate on the turnover in a state. [Aggregate turnover shall include the aggregate value of all taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST.] Aggregate turnover shall be computed on all India basis. For NE States and special category states, the exemption threshold shall be [Rs 10 lakhs]. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (ITC) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.
21) How will the goods and services be classified under GST regime?
HSN (Harmonised System of Nomenclature) code shall be used for classifying the goods under the GST regime. Taxpayers whose turnover is above Rs 1.5 crores but below Rs 5 crores shall use 2-digit code and the taxpayers whose turnover is Rs 5 crores and above shall use 4-digit code. Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices. Services will be classified as per the Services Accounting Code (SAC).
22) How will imports be taxed under GST?
Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.
23) How will Exports be treated under GST?
Exports will be treated as zero rated supplies. No tax will be payable on exports of goods or services, however credit of input tax credit will be available and same will be available as refund to the exporters. The Exporter will have an option to either pay tax on the output and claimrefund of IGST or export under Bond without payment of IGST and claim refund of Input Tax Credit (ITC).
24) What is the scope of composition scheme under GST?
Small taxpayers with an aggregate turnover in a preceding financial year up to [Rs 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover in a state during the year without the benefit of ITC. The rate of tax for CGST and SGST/UTGST shall not be less than [1 per cent for manufacturer & 0.5 per cent in other cases; 2.5 per cent for specific services as mentioned in para 6(b) of Schedule II Viz Serving of food or any other article for human consumption]. A tax payer opting for composition levy shall not collect any tax from his customers. The government may increase the above said limit of 50 lakhs rupees to up to one crore rupees, on the recommendationof GST Council.
Tax payers making inter- state supplies or making supplies through e-commerce operators who are required to collect tax at source shall not be eligible for composition scheme.
25) Will the composition scheme be optional?
Yes.
26) What is GSTN and its role in the GST regime?
GSTN stands for Goods and Service Tax Network (GSTN). A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders for implementation of GST. The functions of the GSTN would, inter alia, include:
(i) facilitating registration
(ii) forwarding the returns to Central and State authorities
(iii) computation and settlement of IGST
(iv) matching of tax payment details with banking network
(v) providing various MIS reports to the Central and the State Governments based on the tax payer return information
(vi) providing analysis of tax payers' profile, and
(vii) running the matching engine for matching, reversal and reclaim of input tax credit.
The GSTN is developing a common GST portal and applications for registration, payment, return and MIS/reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT systems and would be building interfaces for tax payers. Further, the GSTN is developing back-end modules like assessment, audit, refund, appeal etc. for 19 States and UTs (Model II States). The CBEC and Model I States (15 States) are themselves developing their GST back-end systems. Integration of GST front-end system with back-end systems will have to be completed and tested well in advance for making the transition smooth.
27) How are the disputes going to be resolved under the GST regime?
The Constitution (one hundred and first amendment) Act, 2016 provides that the Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute-
-
between the Government of India and one or more States; or
-
between the Government of India and any State or States on one side and one or more other Sates on the other side; or
-
between two or more States, arising out of the recommendations of the Council or implementation thereof.
28) What is the purpose of compliance rating mechanism?
As per Section 149 of the CGST/SGST Act, every registered person shall be assigned a compliance rating based on the record of compliance in respect of specified parameters. Such ratings shall also be placed in the public domain. A prospective client will be able to see the compliance ratings of suppliers and take a decision as to whether to deal with a particular supplier or not. This will create healthy competition amongst taxable persons.
29) Are actionable claims liable to GST?
As per section 2(52) of the CGST/SGST Act actionable claims are to be considered as goods. Schedule III read with Section 7 of the CGST/SGST Act lists the activities or transactions which shall be treated neither as supply of goods nor supply of services. The Schedule lists actionable claims other than lottery, betting and gambling as one of such transactions.
Thus only lottery, betting and gambling shall be treated as supplies under the GST regime. All the other actionable claims shall not be supplies.
30) Are transaction in securities be taxable in GST?
Securities have been specifically excluded from the definition of goods as well as services. Thus, the transaction in securities shall not be liable to GST.
31) What is the concept of Information Return?
Information return is based on the idea of verifying the compliance levels of registered persons through information procured from independent third party sources.
As per section 150 of the CGST/SGST Act, many authorities who are responsible for maintaining records of registration or statement of accounts or any periodic return or document containing details of payment of tax and other details of transaction of goods or services or both ortransactions related to a bank account or consumption of electricity or transaction of purchase, sale or exchange of goods or property or right or interest in a property under any law for the time being in force, are mandated to furnish an information return of the same in respect of such periods, within such time, in such form and manner and to such authority or agency as may be prescribed. Failure to do so may result in penalty being imposed as per Section 123.
32) Different companies have different types of accounting software packages and no specific format are mandated for keeping records. How will department be able to read into these complex software?
As per Section 153 of the CGST/SGST Act, having regard to the nature and complexity of a case and in the interest of revenue, department may take assistance from an expert at any state of scrutiny, inquiry, investigation or any other proceedings.
33) Is there any provision in GST for tax treatment of goods returned by the recipient?
Yes, Section 34 deals with such situations. Where the goods supplied are returned by the recipient, the registered person (supplier of goods) may issue to the recipient a credit note containing the prescribed particulars. The details of the credit note shall be declared by the supplier in the returns for the month during which such credit note was issued but not later than September following the end of the year in which such supply was made or the date of filing of the relevant annual return, whichever is earlier. The details of the credit note shall be matched with the corresponding reduction in claim for input tax credit by the recipient in his valid return for the same tax period or any subsequent tax period and the claim for reduction in output tax liability by the supplier that matches with the corresponding reduction in claim for ITC by the recipient shall be finally accepted and communicated to both parties.
34) What is Anti-Profiteering measure?
As per section 171 of the CGST/SGST Act, any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. An authority may be constituted by the government to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
LEVY OF AND EXEMPTION FROM TAX
1) Where is the power to levy GST derived from?
Article 246A of the Constitution, which was introduced by the Constitution (101st Amendment) Act, 2016 confers concurrent powers to both, Parliament and State Legislatures to make laws with respect to GST i.e. Central tax (CGST) and state tax (SGST) or union territory tax (UTGST). However, clause 2 of Article 246A read with Article 269A provides exclusive power to the Parliament to legislate with respect to inter-State trade or commerce i.e. Integrated tax (IGST).
2) What is the taxable event under GST?
Taxable event under GST is supply of goods or services or both. CGST and SGST/ UTGST will be levied on intra-State supplies. IGST will be levied on inter-State supplies.
3) Whether supplies made without consideration will also come within the purview of supply under GST?
Yes, but only those activities which are specified in Schedule I to the CGST Act / SGST Act. The said provision has been adopted in IGST Act as well as in UTGST Act also.
4) Will giving away essential commodities by a charitable institution be taxable activity?
In order to be a supply which is taxable under GST, the transaction should be in the course or furtherance of business. As there is no quid pro quo involved in supply for charitable activities, it is not a supply under GST.
5) Who can notify a transaction to be supply of goods or services?
Central Government or State Government, on the recommendations of the GST Council, can notify an activity to be the supply of goods and not supply of services or supply of services and not supply of goods or neither a supply of goods nor a supply of services.
6) What are composite supply and mixed supply? How are these two different from each other?
Composite supply is a supply consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are bundled in natural course and are supplied in conjunction with each other in the ordinary course of business and where one of which is a principal supply. For example, when a consumer buys a television set and he also gets warranty and a maintenance contract with the TV, this supply is a composite supply. In this example, supply of TV is the principal supply, warranty and maintenance service are ancillary.
Mixed supply is combination of more than one individual supplies of goods or services or any combination thereof made in conjunction with each other for a single price, which can ordinarily be supplied separately. For example, a shopkeeper selling storage water bottles along with refrigerator. Bottles and the refrigerator can easily be priced and sold separately.
7) What is the treatment of composite supply and mixed supply under GST?
Composite supply shall be treated as supply of the principal supply. Mixed supply would be treated as supply of that particular goods or services which attracts the highest rate of tax.
8) Are all goods and services taxable under GST?
Supplies of all goods and services are taxable except alcoholic liquor for human consumption. Supply of petroleum crude, high speed diesel, motor spirit (commonly nown as petrol), natural gas and aviation turbine fuel shall be taxable with effect from a future date. This date would be notified by the Government on the recommendations of the GST Council.
9) What is meant by Reverse Charge?
It means the liability to pay tax is on the recipient of supply of goods and services instead of the supplier of such goods or services in respect of notified categories of supply.
10) Is the reverse charge mechanism applicable only to services?
No, reverse charge applies to supplies of both goods and services, as notified by the Government on the recommendations of the GST Council.
11) What will be the implications in case of receipt of supply from unregistered persons?
In case of receipt of supply from an unregistered person, the registered person who is receiving goods or services shall be liable to pay tax under reverse charge mechanism.
12) Can any person other than the supplier or recipient be liable to pay tax under GST?
Yes, the Central/State government can specify categories of services the tax on which shall be paid by the electronic commerce operator, if such services are supplied through it and all the provisions of the Act shall apply to such electronic commerce operator as if he is the person liable to pay tax in relation to supply of such services.
13) What is the threshold for opting to pay tax under the composition scheme?
The threshold for composition scheme is Rs 50 lakh of aggregate turnover in the preceding financial year. The benefit of composition scheme can be availed up to the turnover of Rs 50 lakh in current financial year.
14) What are the rates of tax for composition scheme?
There are different rates for different sectors. In normal cases of supplier of goods (i.e. traders), the composition rate is 0.5 % of the turnover in a State or Union territory. If the person opting for composition scheme is manufacturer, then the rate is 1 per cent of the turnover in a State or Union territory. In case of restaurant services, it is 2.5 per cent of the turnover in a State or Union territory. These rates are under one Act, and samerate would be applicable in the other Act also. So, effectively, the composition rates (combined rate under CGST and SGST/UTGST) are 1 per cent, 2 per cent and 5 per cent for normal supplier, manufacturer and restaurant service respectively.
15) A person availing composition scheme during a financial year crosses the turnover of Rs 50 lakh during the course of the year i.e. say he crosses the turnover of Rs 50 lakh in December? Will he be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31st March?
No. The option availed shall lapse from the day on which his aggregate turnover during the financial yearexceeds Rs 50 lakh.
16) Will a taxable person, having multiple registrations, be eligible to opt for composition scheme only for a few of registrations?
All registered persons having the same Permanent Account Number (PAN) have to opt for composition scheme. If one registered person opts for normal scheme, others become ineligible for composition scheme.
17) Can composition scheme be availed of by a manufacturer and a service supplier?
Yes, a manufacturer can opt for composition scheme generally. However, a manufacturer of goods, which would be notified on the recommendations of the GST Council, cannot opt for this scheme. This scheme is not available for services sector, except restaurants.